The crisis in confidence hits home

Strategic focus groups I am conducting show a growing lack of trust to find stability from either governments or financial institutions.

OK, SmartCompany readers. Here is my view on what’s happening to the market and how it will affect small and medium business.

Australia is reflecting a global response to the crisis in confidence in the American market. The problems go well beyond the sub prime mortgage issues, and touch on wider issues of insecurity in credit, finance operations and future opportunities.

The business community at the big end of town is being dramatically affected by the pressure on hedge funds and private equity sources who are unable to complete deals in progress. That means, readers, that everything is going to slow down.

As a consequence, small and medium enterprise are facing an effective credit squeeze just when they are starting to be confident that China and the emerging economies of India, Russia and Brazil are expanding at a great rate and present good opportunities. 

Those companies building an export platform are being pressured on cash flow as a result of the global crisis even though the underlying economic conditions are sound.

The problem is that everyone has got used to the huge amounts of liquidity swishing around, and it is going to be a shock when the banks say “show me the contacts” and business owners suddenly have to convince the banks to lend them money while watching risk margins rise and repayment schedules tighten.

Meanwhile consumer confidence is breaking into what I call France and Germany camps: the French equate to the affluent in Australia who believe it is still heaven on a stick and who remain optimistic as the economy crashes all around them, and the German pessimists who are saying: “See? It is not as good as everyone thought.”

Strategic focus groups I am conducting also show that a lack of trust in both government and financial institutions to provide them with the stability through an expansion era is growing. They are not feeling as secure as they once were.

This of course will play straight into John Howard’s camp – the electorate will begin to turn back to the “old dog” who has the experience rather than risk trying the new kid on the block.

So everyone hang on to the safety bars: the roller coaster ride that I predicted several months ago is well and truly underway.

Dr Colin Benjamin is chairman of the independent Melbourne think-tank Marshall Place Associates and director-general of Life. Be in it International. Colin has a professional doctorate in business administration at the Australian Graduate School of Entrepreneurship and is widely known in marketing circles as the author of the Roy Morgan Values Segments.

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